Capping the deduction would hurt every homeowner—even those whose interest payments fall below the cap—because housing is one market, and by reducing the value of the most expensive homes, you reduce the value of every home. Economist Richard McKenzie has estimated that the value of every home in America would decline by 10% to 15% the day after the deduction is capped.
That’s fundamentally unfair, as are limits on the deductibility of charitable contributions and state taxes. Generations of Americans have relied on these deductions in making enormously consequential decisions: which house, and in which state, to make a home. “Reliance” is a concept fundamental to the common law and to every American’s sense of fair play. Changing the rules in the middle of a life is deeply wrong—and an invitation to political retribution.
A tax reform that gouges every homeowner—why? Who ran on the platform of devaluing homes? Who gave a campaign speech that said “I will eliminate the home mortgage deduction”? No one did. Instead they rightly campaigned on tax reform and simplification. That is not a mandate to strike at the heart of the American dream, or to play in half-truths about “capping” it only for the wealthiest, when the real effect would be a trickle-down markdown of home values.
It would be fair to announce the end of the mortgage-interest deduction in 30 years. It would be fair to phrase out the deductibility of state taxes by, say, 2050. But not overnight. Not unless you want to give the gavel back to Nancy Pelosi.
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